What is a Majority Shareholder?

What is a Majority Shareholder?

A majority shareholder is a person or entity that owns and controls more than 50% of a company’s outstanding shares. As a majority shareholder, a person or operating entity has a significant amount of influence over the company, especially if their shares are voting shares.

Voting shares give a shareholder permission to vote on different corporate decisions, such as who should be on the company’s board of directors.

When a majority shareholder is in possession of voting shares, the person or entity may hold significant sway over the direction of the company.

Characteristics of Majority Shareholders

The majority shareholder is sometimes called a controlling shareholder. It can be a person, company, or government. In many cases, the majority shareholder is the company’s original owner or his or her ancestors.

The majority shareholder’s controlling interest means he or she has more voting power and can influence the company’s strategic direction and operation. Some companies do not have a majority shareholder; this role is more common in privately held companies than in public ones.

The majority shareholder may be the chief executive officer (CEO) of the company. This individual sets strategic goals for the corporation and takes steps to ensure that they are met. In larger firms, corporations, mutual funds, banks, pension funds, and hedge funds often hold large blocks of shares.

In many cases, CEOs and directors are paid all or part of their salary in stock options, so they may also hold large stock percentages. When stock is bought or sold by a corporate executive, this information must be made public and reported to the Securities and Exchange Commission using Form 10-Q.

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Some majority shareholders do not participate in the everyday management of the company, while others are intimately involved in its inner workings. If a majority shareholder wants to reduce or completely sell his shares, he may choose to sell to competition or private equity firms to get the best price.

Corporate shareholders can vote in their own interest as long as they do not violate the fiduciary duty they owe to other shareholders.

Majority Shareholders – Rights and Privileges

Majority shareholders have the benefit of voting and election privileges. Again, it means that they have a say in the directions the company decides to take. Majority shareholders are consistently updated about how the company is performing, and if they are unhappy, they can request an election for new board members.

It’s also important to note that shareholders are not responsible for a company’s failure or insolvency. Any personal assets a majority shareholder holds outside of the company aren’t at risk. The primary issue is that if a company has sizeable financial obligations, namely outstanding debts, shareholders won’t receive any cash assets or dividends until the company has resolved all of its liabilities.

Pros and Cons of Majority Shareholder

A majority shareholder may be either an asset or a detriment to a company, depending on how their decision-making affects the company. Potentially positive and negative aspects of a company with a majority shareholder can include:

Possible Pros

  • Final say on strategic planning and corporate objectives
  • Board of directors and executive leadership with a united vision
  • Financial motivation

Possible Cons

  • Overrule of minority shareholders
  • Board members or executives may worry about the power of a majority shareholder
  • A majority shareholder can act in their own interest
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Pros Explained

  • Final say on strategic decisions and long-term goals: A strong corporate leader who is a majority shareholder can have the final say on strategic planning and corporate objectives. If they have a strong vision, this could benefit the company.
  • Board of directors and executive leadership with a united vision: A majority shareholder can have significant influence on the appointment of a company’s board members and senior executives.
  • Financial motivation: A majority shareholder will enjoy a high percentage of the financial gains if a company is profitable and the share price increases. So they may be driven to make decisions based on the best interest of the company.

Cons Explained

  • Overrule of minority shareholders: Majority or controlling shareholders can overrule a larger number of minority shareholders regarding board appointments, strategic decisions, or other corporate matters. They may even be able to force valuable members of the executive team or board of directors out due to a personality difference.
  • Board members or executives may worry about the power of a majority shareholder: Company executives may be less inclined to disagree with a majority shareholder’s opinion in the interest of protecting their job.
  • A majority shareholder can act in their own interest: Majority shareholders often have the ability to act in their own best interests rather than the best interests of the company and its other shareholders.

Example of a Majority Shareholder

Majority shareholders are often companies that own a controlling stake in many companies. For example, the company Berkshire Hathaway, of which Warren Buffett is the CEO, has a controlling interest in many other companies.

Berkshire Hathaway is a majority shareholder in other companies. But Berkshire Hathaway itself also has shareholders. However, Berkshire Hathaway doesn’t have a majority shareholder.

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Because most companies that have majority shareholders are very small, there are not very many companies that are household, or well-known, that have a majority shareholder (because these companies tend to be larger). One exception is Dell Technologies Inc. According to a Dell Technologies Proxy filing in May with the U.S. Securities and Exchange Commission (SEC), Micheal Dell controls about half of the company’s equity (52%).